Buyer's Guide

As a buyer, local or foreigner you may have a lot of questions regarding how New York real estate works. I have put together a guide that will help you answer these questions.

New York City Real Estate for local Buyers and Foreign Investors

Manhattan Real Estate has long been in high demand among buyers and foreign investors; properties here are very valuable due to the prime location. New York City is considered to be the capital of the world as you might have heard numerous times, and in fact it is. The best of all industries are concentrated in Manhattan including arts, culture, banking, commerce, fashion, television, filmmaking, advertising, marketing etc. New York also offers a long list of events that attract people from all over the world, whether for conferences, concerts, or just visiting. Point is residences in key locations are always sought after.

As a buyer, local or foreigner you may have a lot of questions regarding how New York real estate works. I have put together a guide that will help you answer these questions.

The Expenses of a New York Property Owner

It is important to understand that regardless of the New York property ownership you select, there will be expenses in addition to the purchase price. Fortunately, a lot of these expenses are tax-deductible like the carrying charges, real estate taxes and the interest that co-op shareholders pay on the mortgage.

Real Estate taxes can amount to thousands of dollars based on the specific property. It is important that you consult with your accountant regarding the reduction of these taxes whether you are an owner or investor.

Maintenance fees for co-op owners and common charges for condo owners. These expenses are based on the amenities the building has.

Condos

The Real Estate market in the NYC is very friendly to foreign investors; at the moment, townhouses and condominiums are the most popular purchases. When you buy a condo you own the apartment you purchased and share the common areas with the other building residents. Over the past years numerous new condominiums have been constructed in Manhattan, and many older buildings have been renovated into condos with the addition of modern amenities. Over the first 10-25 years savings in taxes can be significant for these owners. Today in New York condos account for over one-fourth of the real estate market.

Why Are Condos So Attractive?

As a new resident, passing the approval of a board, which is made up of residents is really more of a formality and not as complicated and strict as in co-ops.

There are minimal restrictions on tenants as far as ownership or use. Sub-letting, temporary living and other options are available unlike in co-ops.

Buying and selling a condo in New York is a relatively simple process when compared to co-ops. Hence, foreign buyers prefer condos.

Even though condos are more expensive than co-ops, they are also much more flexible and convenient. They are usually well-designed modern buildings that make smart and profitable investments.

What Entails Owning a Co-op?

The biggest challenge of buying a co-op is getting approval from the board. This step is difficult for both US citizens and foreign buyers, the boards tend to be very demanding and being from a different country can add another layer of difficulty. Buyers that appeal to co-op boards are those who indicate that they will be good neighbors, easy to get along with and that will contribute financially to the building’s maintenance. They prefer that the potential residents have a nearly perfect credit score and jobs in New York. The most significant challenge for foreign buyers is having a US tax return, a requirement for many co-ops.

The Benefits of Co-op Ownership

Even though they are not suited to foreign investors, a co-op can be a great place to call home. A lot of these buildings tend to be charming pre-war architectural wonders. They have beautiful facades, they are sturdy structures and luxurious, often with cozy fireplaces, high ceilings and gardens.

3/4s of New York City real estate is made up of co-ops.

Prices are 10-20% lower than condos. However, maintenance, mortgage (if applicable), real estate taxes, and utilities, could be higher. The only tax-deductible expenses are the interest on the mortgage and the real estate taxes.

The Downsides to Owning a Co-op

The approval process can take months and it can be difficult.

Financing for a co-op unit rarely exceeds 80%

There are specific regulations to co-op’s usage such as the amount of guests that the owner can have at any given time or having renovations.

Some buildings completely forbid subletting unless the owner has lived there for a certain amount of years. An investor may reconsider buying a co-op if he is looking to sublet.

There needs to be approval from the board if the owner wants to sell or rent his/her unit.

When selling a co-op there is a “flip tax” a fee the board charges in order to give permission to leave. Its main purpose is to keep speculators away.

How Do You Find a Property?

I will be more than happy to help you find a property; I have access to numerous listings of apartments available in the market. We can talk about your preferences as far as building type, size, amenities etc. then we set out on the search. I have extensive experience in Manhattan real estate and I will be able to provide you with a detailed comparable market analysis and advice. The process of buying New York Real Estate can be complicated, there are many documents that need to be presented, and finding the property that suits your needs can be time consuming. You also have to find a mortgage broker and a lawyer. For foreign investors things can get even more complicated, especially when tax documents play such a big role when buying property. I am able to personalize your search and guide you through every step of the process. Here are some of the costs and information on the taxes that you will need to know

Closing Costs

Both buyers and sellers have to pay the closing costs, they range anywhere from 1-8% of the purchase price. Federal, state, city, registration, and legal fees are required along with the down payment. These are the costs

Real Property Transfer tax – for condo purchases in NYC, which ranges from 1% for condos that cost less than $500,000.00, to 1.425% for condos which cost more than $500,000.00.

New York State Transfer Tax - .4% of the purchase price.

Seller’s Attorney Fee - $1500.00-2500.00

Title Ownership gives the buyer his rights of ownership and ensures that a third party won’t ever be able to claim ownership. The cost is $450.00/$100,000.00 of the price of purchase.

Mansion Tax – applied if the property’s price exceeds $1M and is 1% of the purchase price.

Additional Fees

Mortgage Loan Origination Fees – ranges from .5%-3% of the value of the mortgage.

Move-In Deposit – ranges from $500 - $1500

Application Fees – some buildings charge this fee and is usually about $200

Managing Agent Fee - $250 - $500

Attorney’s Fee – for the lawyer that has reviewed the documents. Depending on the purchase’s complexity this fee can range from $2500 - $5000 and another additional $500 for the recording costs.

Mortgage Tax – ranges between %1.8% for sums under $499,000 and 1.9% for mortgages over it.

Lieu Search Fees - between $300.00-400.00.

Mortgage Title Insurance - is $200.00/100,000.00 of the property’s value

Credit Reports - between $30.00-100.00

Appraisals - around $500.00 or more

Loan Applications are around $500.00

Bank Attorney Fees - between $1500.00-2500.00

Misc. Bank Fees - include escrow and home insurance ranges from $400- $1200

New York City Real Estate Today

Real Estate in NYC continues to be a great investment option; the long-term growth and home value appreciation is favored by the extremely high demand. Even though condos can be expensive, they are the number one choice for foreign investors; they are expected to outperform the rest of NYC real estate over a number of years to come. It is especially a great investment for foreign buyers whose currencies are stronger.

Even though the economy may be troubling at the moment, trends indicate that things will continue to go well for NYC real estate. There are numerous new condominiums buildings all over Manhattan that are attracting people from all over the world. Also, interest rates on mortgages are at historical lows and as the economy recovers, the government has announced that the rates will remain low until 2014.

David Calderazzo As Your Broker

There are several advantages on having a broker, as your broker I can intercede on your behalf for a price reduction or request concession.

In order to make sure you get the property you want and the best possible price, it is important that you have representation from an experienced broker. If you don’t have one you can find yourself losing money as a result of not knowing the ropes.

My job as a broker is to run the entire process smoothly and quickly, my access to the many properties in Manhattan and the many years of experience will be to your entire benefit as the buyer. I will help you gather the proper documents, guide you through certain applications and coordinate a team of professionals that will work to complete the purchase.

In New York City local or international buyers do not pay brokerage fees. The fees are paid by the seller and then divided between the buyer’s broker and the seller’s broker; this fee is 6% of the purchase price.

The Professional Team

Is very important to have an attorney, they are needed to obtain insurance, to research on the title and any violations or lieu’s on the building. They also negotiate the contract, which is the initial agreement that leads to the deposit.

The appraisers are needed to research a NYC’s property’s fair market value. Surveyors research the condition of the property. Architects are hired to check a property’s measurements and finally the mortgage brokers come into place in order to help the buyer obtain a loan.

Tax Abatements

Tax abatements are programs that allow taxpayers to be granted a reprieve from paying a certain tax for a period of time, for either a total or a percentage of that tax. Is a motivational tax, intended to encourage real estate developers in New York to keep building and enhancing neighborhoods. The tax status a building qualifies for is dependent on the specifics of any given building. I can advise an owner about his or her property’s tax status.

Tax Exemption Program - Covering new buildings and some specific renovations.

421-A — Intended for new buildings, this program’s purpose is to phase out tax exemptions over a period of 10 years. Real estate tax increases by 20% each 2nd year until it reaches maturity. For example, 100% exempt for the 1st and 2nd year, 80% exempt for the 3rd and 4th year, until it reaches the 10th year.

421-G — Intended for new buildings, this program applies to one specific area, namely below Manhattan’s Murray street. The buildings that are eligible in the area get tax benefits for 14 years. This lowered payment applies for the first 8-10 years and is gradually phased out till it expires in the 14th year.

Additional Incentives — Many New York City buildings can qualify for abatement periods that range between 15 to 25 years. A building’s eligibility is studied based on the units available that are reasonably priced, location and the assistance from the government that is receiving.

Getting a Mortgage (US Citizens)

This process is relatively hassle-free. All you need to do is have your tax returns from the past three years, bank account information, proof of employment, references, last pay stubs and proper identification. After completing the initial application you will work directly with your mortgage broker. If you qualify for a mortgage today you will most likely get a great deal, interest rates on mortgages are at historical lows.

Getting a Mortgage for Foreign Buyers

It is not as challenging as one may think. Most of the banks in the United States now have programs in place intended specifically for foreign buyers. Banks are able to finance 65-75% of their loans, up to $1 million and 60% of their loans that fall in the range of between $1 and $2 million. Foreign buyers are asked to provide a number of specific documents. Such as:

At least 4 Credit References, which must be from professionals who work in finance, like Accountants, Bankers and Insurance Officials.

Foreign Passport or Visa

Sufficient Funds for Closing

Proof of Mortgage and/or Rent payments for a period of at least one year

Proof of Employment

Though some banks waive this requirement, buyers are then charged higher interest rates.

LLCs

It can be beneficial to buy a home through a Limited Liability Company, or LLC. However, treaties between the US and that specific foreign country can diminish the advantages for foreign buyers. An international purchaser really should enlist a tax adviser who specializes in international law to help. I can help you find one.

Important things to know about LLCs:

An LLC has to be formed in the same US state in which the property is located.

LLCs must file local, state, and federal tax returns.

Once the sale happens, the owners can transfer or sell the LLC shares to the buyer.

There are unlimited membership requirements to an LLC. It can be composed of US residents and non-residents.

It takes about a week to form an LLC.

Tax Liability for Foreign Buyers

Tax liability for non-US residents is different than for residents. Here is a breakdown,

Federal Tax - For US residents, the federal tax placed on long-term investments is 15%. For non-residents is 30%

FIRPTA - Stands for “Foreign Investment in Real Property Tax Act.” Passed in 1980, this act immediately withholds income tax after a foreigner sells property. The IRS takes 10% of the proceeds and NY State takes another 6.85%

Forms - NY State requires a Non-Resident Real Property Estimated Income Tax Payment Form, while you need to submit a Statement of Withholding on Dispositions by Foreign Persons of US Real Property Interests to the IRS.

Registering Property Rights

At the time of the closing, the attorney records the details of the buyer

And then submits them in to the NYC Register. Documents are photocopied, photographed, and filed.

Purchasing Real Estate Properties for Rentals

There is a thriving market in New York City for rentals, even when rent prices can be extremely high, a lot of people still choose them over buying their own property. There is also a low vacancy rate, which means that a buyer will easily find regular tenants. Most of NYC buildings only offer long-term leases or 6+ months, but some allow for shorter-term arrangements like month to month. There are companies that specialize in temporary furnished rentals, so as a buyer that may be an option you would like to keep, especially if you sometimes will like to vacate your own property for a short period of time. If you plan on buying a NYC apartment in order to rent it out I will be happy to help you with the process from beginning to end.

To conclude, here is a checklist of the steps you need to take

Decide the type of property you would like to buy

Make sure you are eligible for financing

Hire an attorney to review documents

Talk to a tax specialist

Go on with the financing process and have the down payment ready

Search for the property

Make an offer

I will help you negotiate the contract and the attorney will revise.

Approval from the board of the co-op or condo that you have chosen.

If approved, the deal will be closed, contracts will be signed and the keys will be handed to the new owner.

a. Exclusions: (i) Purchase Price less than $250,000 on improved property; and (ii) Purchase Price less than $100,000 on un-improved property
b. Residential 1-3 Family Dwelling less than $1,000,000 and all other properties = 2.40%
c. Residential 1-3 Family Dwelling $1,000,000+ = 3.40%

Common Charge Adjustment

Pro-rated for the month of closing

Real Estate Tax Adjustment

Pro-rated depending on when the tax is collected

Miscellaneous Condominium Charges

Vary by building

Short Term Interest

Equal to interest for balance of month in which you close

Townhouses and Single Family Homes

Buyer’s Attorney

Consult your attorney

Bank Fees

$750

Application Fee

$350

Processing Fee

$330

Appraisal Fee

$300-$1,500 (depending on sales price)

Credit Report Fee

$10.10 single/$15.20 joint

Bank Attorney

$650-$750

Tax Escrows

2 to 6 months

Recording Fees

$250-$750

Fee Title Insurance

Amounts vary, please consult your attorney

Mortgage Title Insurance

Amounts vary, please consult your attorney

Municipal Search

$350-$500

Mortgage Tax - NYC (paid by borrower)

1-3 Family Home or Condo:
If mortgage is less than $500,000: 1.80%. If mortgage is $500,00 or more: 1.925% of loan amount

Mortgage Tax - Nassau & Suffolk (paid by borrower)

1-3 Family Home or Condo: 0.80% of loan amount

Peconic Bay Tax

Tax applies to properties in the townships of Southampton, East Hampton, Riverhead, Southold and Shelter Island.
a. Exclusions:
(i) Purchase Price less than $250,000 on improved property; and (ii) Purchase Price less than $100000 on un-improved property
b. Residential:
1-3 Family Dwelling less than $1,000,000 and all other properties = 2.40%
c. Residential:
1-3 Family Dwelling $1,000,000+ = 3.40%

While we endeavor to verify the truth and accuracy of the information contained herein, we make no representation or warranty with respect to such information. Accordingly, all information published herein is subject to error, omission, change or withdrawal without notice. Please confirm all information with the contact prior to viewing the apartment.